British and European industrialization

7/24/2019 British and European industrialization

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BRITISH AND EUROPEAN INDUSTRIALIZATION

C. Knick Harley

UN I V E R S I T Y O F OX F O R D

Discussion Papers inEconomic and Social History

Number 111, February 2013


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British and European industrialization

C. Knick Harley

University of Oxford

Forthcoming in the Cambridge History of Capitalism, Vol. 1.Edited by Larry Neal and Jeffrey Williamson

Abstract

Modern economic growth the simultaneous increase in population and average incomes

has been capitalisms greatest achievement. This growth first became apparent in Britain in

the nineteenth century and then spread to continental Europe (and the United States). The

process is usually associated with the Industrial Revolution in Britain and the spread of

British-type industrialization to follower economies. This chapter reviews the emergence of

modern economic growth and suggests that the usual view is misleading in that it focuses is

too limited both in time and in the technological change it usually emphasizes. On one hand,

the of famous industries textiles, iron and engineering contributed only modestly to

growth because they constituted only a small proportion of the economy. Furthermore, the

emergence of growth was much more gradual than traditionally understood. In new views,

Britain was already a substantially industrialized economy with relatively high wages before

the early eighteenth century. The origin of growth appear to lie in the ability of an economy

in which both product and factor markets were well developed in both the rural and urban

areas to partially overcome Malthusian constraints. The spread of growth to continental

Europe is often seen as the spread of new technology of the British Industrial Revolution.

This too seems somewhat misleading. The industries were small relative to the entire

economies and their success depended on particular conditions. Furthermore, just as Britains

early success rested importantly on productive capitalist agriculture, the emergence of

increased incomes on the continent depended on agricultural reforms that increases in its

productivity.


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Modern economic growththe simultaneous doubling of income and population in

fifty or seventy yearshas been capitalism's greatest triumph. It first became apparent in

Britain in the mid-nineteenth century and spread to America and continental Europe. Modern

growth did not, however, spread elsewhere and a great divergence developed between

income per capita in the few leaders and the rest (Figure 14.1).

It is common to attribute modern growth to the factory-based industrialization that

emerged from British inventions in textile production and steam power in the later eighteenth

centurythe Industrial Revolution, represented dramatically by the patents of both Richard

Arkwright's water frame for the mechanical spinning of cotton thread and James Watt's

improved steam engine in 1769. These inventions created an explosion of urban factory-

based industry particularly in textiles that made Britain the workshop of the worldby the

1850s. By that time British factories provided some two-thirds of the worlds output of new

technology industries(Bairoch 1982, p.288). Growth seemed to be the product of novel

urban factory-manufacturing and the social changes that it brought about. Marx and Engels

starting with the Communist Manifestoin 1848 put forward a forceful theory of economic

growth in which the class of modern capitalists, owners of the means of social production

and employers of wage labor,occupy center stage as the agents of disruptive but productive

change (Marx & Engels 1848, chap.1). The spread of modern economic growth is usually

seen as the spread of the British factory system to continental Europe and America. Marx

remarked the country that is more developed industrially only shows, to the less developed,

the image of its own future. (Marx 1867, p.ix). Economic historians, however, now question

the closeness of the connection between urban factory industrialization and the emergence of

modern economic growth. Estimates of overall income show modest connection with the


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famous industrial breakthroughs. Britain was already relatively rich when the Industrial

Revolution occurred and the innovations that created urban factory industrialization were the

product of the already advanced economy. Similarly, incomes in continental Europe in the

nineteenth century are not well explained by adoption or non-adoption of the technology that

Britain pioneered.

The emergence of Britains modern economic growth depended more on a long

history of capitalism than on the Industrial Revolution. British capitalism, involved in large

measure in enterprises of modest scale and created institutionsparticularly marketsthat

supported efficient allocation, and reallocation, of resources and provided incentives

consistent with wealth accumulation and innovation. As Chapter 1 pointed out the

displacement of custom and command with durable and long lasting markets was potentially

of key importance. Goods and factors markets were well-established in the late medieval

Britain and Holland and persisted through the following centuries. These societies developed

an economic lead that was apparent by the sixteenth century and rested on agricultural

productivity and efficient service industries as much as on industrialization. The emergence

of growth in continental Europe in the nineteenth century depended less on the spread of

British-style industrialization and more on the spread of British-type capitalism and the

institutions that supported it. Rising productivity across the economy created growth;

excessive concentration on the spread of factory manufacturing overlooks much of a broader

process.

The British Industrial Revolution

Estimates of aggregate economic activity underlie understanding of the beginnings of

modern economic growth. Early quantitative analysis of the growth of British national


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income appeared to support the traditional view of late eighteenth century inventions creating

an Industrial Revolution (Hoffmann 1955; Deane & Cole 1967). Deane and Coles systematic

use of the early censuses to estimate national income showed per capita income accelerated

during the Industrial Revolution. Revision of the aggregate estimates since, however, has

questioned sudden aggregate change arising from great factories of industrial capitalists.

Some historians, most notably, Sir John Clapham who also drew on census data on

occupations, had earlier questioned the representativeness of the new factory industries and

the impact they had on the fundamental issue of raising standards of living. (Clapham 1926).

Using Deane and Coles income estimates, D. N. McCloskey published a revealing calculation

that suggested that technological advances in the new technology industries were

insufficient to explain the acceleration of national income and concluded that technological

change had become pervasive in early nineteenth century Britain, although it was still slow

by twentieth century standards (McCloskey 1981, p.114). Views of a broader process of

change and a revision of the timing of change were strongly supported when scholars

revisited the pioneering estimates in the mid 1980s and concluded that Hoffmanns and

Deane and Cole unconsciously exaggerated the discontinuity in the final decades on the

eighteenth century. Harley pointed out that Hoffmanns estimate of industrial production

index dealt with the incomplete coverage of manufacturing industries with an implicit

assumption that other industries, in aggregate approximately the size of cotton textiles, shared

cottonsexceptional growth following Arkwrights inventions (Harley 1982). Crafts re-

examined Deane and Coles extrapolation of nineteenth century census data into the

eighteenth century and their conversion of estimates of income in current prices into real

income and concluded that aggregate growth was substantially slower between 1770 and


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1840 (Crafts 1976; Crafts 1985). The changes in the aggregate estimates are illustrated in

Figure 14.2. Slower growth in the late eighteenth and early nineteenth century implied that

eighteenth century Britain must have already been richer than we had previously thought and

that nineteenth century income levels depended less on the famous technological

breakthroughs.

Research (initially spearheaded by historians of the Asian economies (Pomeranz

2001; Parthasarathi 1998; Parthasarathi 2011) has also placed British and European economic

growth in a broader framework. Multinational comparisons of economic performance are

tricky even if data are extensive and much harder in data scarce historical circumstances.

However, labor income makes up the majority of national income. It can also be reasonably

argued that the well-being of ordinary people is the best indicator of societal well-being and

their income is almost entirely labor income. It is also the case that labor income is the most

readily available component of historical income because corporate, public and private

bodies whose archives make up most of the historical record regularly hired wage labor.

Scholars have collected this material for the earlier developers and increasingly for later

developing societies. The records are, of course, not perfect indicators of societal well-being

particularly as in many societies only a small part of labor income passed through organized

labor markets. Nonetheless, wage data deflated by indicators of the cost of living provide us

with significant insights into historical economic performance.

Prior to the nineteenth century, the balance between population and resources was the

prime determinant of real wages. Figure 14.3 shows this clearly in the case of England. The

fourteenth century Black Death which killed off over one third of the population resulted in a

dramatic increase in real wages. Real wages declined to near pre-plague levels when


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population eventual recovered, beginning at the end of the fourteenth century. Slower

population growth after 1650 led to a rise of wages that ended in the mid-eighteenth century

when population growth resumed. Only after the first quarter of the nineteenth century did

increases in real wages accompany continued population growtha transformation to

modern economic growth which reinforces traditional narratives of transformation at the end

of the eighteenth century.

Placing Englandsexperience in the context of other European regions, however,

reveals a different picture (Allen 2001). The Malthusian fall in real wages of the fifteenth

century occurred throughout Europe but by the sixteenth century another dynamic appeared.

In the North Sea economiesthe Low Countries and Englandreal wages declined

significantly less than elsewhere and in the early seventeenth century wages began to grow.

This phenomenon, which Allen called the great divergence in European wages and Jan

Luiten van Zanden the little divergence, (to distinguish it from the great divergence

between developed economies and the rest) directs attention to a period well before the

classical Industrial Revolution.

Wage data are not as extensively available outside Europe and its off-shoots but

research is beginning to fill the gaps (Allen 2001; Allen et al. 2011). Preliminary results show

that in the eighteenth century real wages in major Asian cities were comparable to those in

most of Europe with the important exception of the North Sea economies. European wages

generally started to trend upwards in the nineteenth century but Asian wages declined until

mid century and fell behind those in all but the poorest areas in Europe. The wage data

challenge most economic historianssupposition that European incomes generally were

superior to those in Asia in the early modern period and who have postulated general features


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of European society as causes of modern economic growth. Perhaps we should not be

surprised, however. Allen found that in most of Europe an unskilled laborersreal earnings

fell in early modern times to below levels needed to support a modest family on the cheapest

diet available (the unit (1) on the vertical axis of Figure 14.4 is the cost of supporting a family

of a man, a wife and two small children on a bare subsistence diet primarily of oatmeal gruel

or its equivalent).

Although long-run comparative data have made it clear that we need to take a longer

and broader view of the process of industrialization, the Industrial Revolution between 1770

and 1840 remains important. The famous new technologies did not, in and of themselves,

transform the economy, but they were early manifestations of the acceleration of the rate of

technological change that characterizes modern growth. Most inventive activity undoubtedly

arises from conscious search and successful technological improvement seldom emerges

fully formed but rather requires expensive continuing research and development. Market

conditions in late eighteenth century Britain greatly increased the likelihood that new

technologies that substituted machinery, mechanical power sources and mineral fuels would

occur there rather than elsewhere.

First, as we have seen, British workers earned higher wages than workers elsewhere

(the Low Countries excepted). Second, only in Britain had coal been extensively mined and

technologies for its use as residential and industrial fuel evolved ((Allen 2009b; Hatcher

1993; Nef 1932). Consequently, British manufacturers chose cost minimizing techniques that

used capital and energy to save labor and British research and development had a machinery-

using, fuel-intensive starting point. Elsewhere there was much less incentive to explore

possibilities of this sort because firms were not currently employing coal-using and labor-


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saving techniques. In addition, outside of Britain small improvements that used capital and

fuel to save labor would not lower costs of production. It is hardly surprising, then, that the

breakthroughs in machine-based cotton spinning, steam engines, and coke-iron production

were British (Allen 2009b; Allen 2010).

Of course, the innovations in machine-based cotton spinning, steam engines, and coke

iron production were not small improvements but massive breakthroughs. Arkwrights water

framethe most spectacularreduced the price of coarse cotton yarn to about a third of its

mid-eighteenth century by the early nineteenth century and finer yarn by much more (Harley

1998); Watts steam engine revolutionized power supply; Corts puddling-furnace and

rolling-mill made coke production of wrought iron on a large scale profitable. Nonetheless,

these changes modified existing practices adapted to high wages and cheap energy. While

there seems to be no a priorireason to think that capital-intensive and energy-using

techniques were more likely to generate technological breakthroughs than other techniques, it

appears that for the past two centuries technological change has mostly clustered around

improvements of techniques used in rich economies that employed capital, energy and raw

materials intensively(Allen 2012). It is unclear whether this reflects the nature of possible

technical improvement or identifies technologically advanced societies with advanced

engineering skills and advanced capacity for innovation, and consequently high income

levels.

The argument that machine technology emerged from a conscious search process

undertaken by entrepreneurs experienced in using capital-intensive methods because they

operated with expensive labor and cheap energy seems compelling. As an explanation as to

how and why economies entered into the era of modern economic growth, however, it is


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unsatisfactory. Crudely, Allen argues that Britain became richer in the nineteenth century

because it was already rich in the eighteenth. This is likely true, but it begs the basic question:

why was eighteenth century Britain rich? Just as national income estimates and comparative

real wages drive us to consider earlier developments, so does the search for the sources of the

technology of the British Industrial Revolution.

British prosperity: productive agriculture

Nineteenth century international comparisons provide insights into the sources of

Britains development leadership. The common perceptionis that economic advancement

arose from superior productivity in modern manufacturing but when data allow comparison

in the nineteenth century, Britain, although it pioneered the Industrial Revolution and

developed a much larger manufacturing sector than its rivals, does not have much higher

output per worker in manufacturing than France or Germany. Patrick OBrien and C. Keydar

(Keyder & OBrien 1978)in their reinterpretation of French economic growth, estimated that

labor productivity in French industry exceeded that in Britain during the first half of the

nineteenth century by between ten and forty percent. These estimates may overstate the

French achievement but Britain had little or no lead in industrial labor productivity (Crafts

1984a). Nonetheless, Maddison estimates of French per capita income for 1830 at barely over

two-thirds the British level and Allen reports real wages in Paris as between half and three

quarters of those in London. Similarly, comparison with Germany for later in the century

yields similar results. Stephen Broadberry estimated that labor productivity in German

manufacturing in 1871was 93 per cent of British manufacturing productivity even though

GDP per worker was only 60 percent (Broadberry 1997).


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A main determinant of Britains higherper capita income was much higher

productivity in agriculture. Low agricultural productivity characterized Europe outside the

Low Countries. In Britain around 1840 (at a per capita income level of about $550, 1970 US

dollars) the share of the labor force (25 percent) and the share of income (24.9 percent) in

agriculture and extraction were very nearly equal. The average European experience at that

income was an agricultural labor force share of 54 percent and an income share of 37 per

cent. This implies that while output per worker in British agriculture was about the same as in

the rest of the economy, the European norm of labor productivity in agriculture was only half

of that elsewhere (Crafts 1984b; Crafts 1985). Broadberry finds that German agricultural

productivity was 56 percent of British in 1870. The gap between agricultural productivity in

Britain and the continent (outside the Low Countries) appeared between the early seventeenth

century and the mid eighteenth century, well before the Industrial Revolution (Allen 2000).

The distinctive, highly capitalistic nature of British agriculture appears to have

generated high productivity. In most of Western Europe the typical farm was a peasant

operation with customary tenancy and family control of farm operations and labor input. In

contrast the typical British farmer was an entrepreneur who rented land from a landowner,

provided the farms working capital and employed hired labor (Shaw-Taylor 2005; Shaw-

Taylor 2012; Caird 1852). In older views improving landlords and enclosure of the open

fields drove British agricultural change but research has firmly established that in the

seventeenth and eighteenth centuries yeoman farmers on modest size farms initiated and

adopted productivity enhancing changes in open-field villages as well as on enclosed farms

(Allen 1992; Allen 1999; Allen 2009b, chap.3).Underlying driving forces cannot be firmly

establishedbut British agricultures high level of market orientation both in selling its


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produce and in organizing its inputs played a key role. This market orientation was

longstanding, going back to medieval times and reinforced in the aftermath of the Black

Death.

Robert Brennertheory on the origin and nature of British agricultural precocity based

in theories of capitalism provides a useful framework (Brenner 1976; Aston & Philpin 1987;

Pamuk 2007). He saw capitalist farming evolve from late medieval class struggles. In Britain,

the feudal elite became landlords with large land holdings and secure property rights. At the

same time, all vestiges of medieval servile laborwhere serfs were required to work on the

lords demesnedisappeared. Markets replaced customary and power relationships.

Landlords had to compete for tenants to farm their land and tenants depended on the market

for access to land. A regular agricultural wage labor market developed, particularly for young

adults. Farmers who increased productivity were able to offer higher rents, hire labor and

increase the size of their operations while less successful farmers gradually became wage

laborers without the option of remaining family workers on customary tenancies.

In contrast, in most of Western Europe, particularly in France and the western

Germany, late medieval change abolished un-free feudal labor, but failed to provide elites

with clear property rights. Instead, direct agricultural producers gained control of the land on

customary tenures from which they could be removed only with difficulty. The elites

integrated into state structures and extracted resources through taxation. Incentives to

increased productivity were much weaker than in England. Landowners had little opportunity

to select successful tenants to increase rental incomes. Less successful farmers did not

depend on a rental market for access to land. Consequently, it was much more difficult for

successful farmers to acquire larger holdings and less productive peasants were much less


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likely to be forced into wage labor. Customary relationships remained strong and family

workers tended to remain on agricultural holding when marginal product fell below wages

elsewhere in the economy because they had access to a share of the returns of the family

agricultural holding.

The dating of the dominance of capitalist agriculture in Britain and its relationship to

productivity advance is a matter of some dispute. The best documented evidence of the

evolution of efficiency and agricultural structure comes from R.C. Allens study of the South

Midlands (Allen 1992; Allen 2009b, chap.3). He shows that the most impressive gains in

agricultural productivity occurred between 1600 and 1750. Although he argues that these

were the product of the family farm, his evidence shows the importance of capitalist

agriculture. He defines three farm categories: peasant farms of less than 60 acres relying on

family labor; capitalist farms over 100 acres, where hired labor dominated the workforce; a

transitional category completed the taxonomy. In the South Midlands in the early seventeenth

century, enclosures occupied about 17.5 per cent of all land and 90 percent of this was in

farms over 100 acres (although most of this was in very large holding that may have been

sublet). In open field villages land was approximately evenly divided among the three classes

of farm size. Overall, farms over 100 acres occupied a little over forty percent of all land and

the other classes under thirty percent each. By the early eighteenth century the proportion of

enclosed land had nearly doubled to about a third of the total. The dominance of large farms

on enclosed land had declined somewhat but they still occupied nearly three quarters of the

land. Large farms gained ground in open field villages where they now occupied over half the

land. Overall, large farms occupied nearly sixty percent of the land in the South Midlands

around 1700. Medium sized farms that employed labor on a continuous basis occupied


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another twenty percent of the land. Peasant families on the French model where the decision

margin regarding the use of labor was the peasant patrimony and not the labor market farmed

only the remaining twenty percent of the land (Allen 1992, pp.31, 73).

Recently, Leigh Shaw-Taylor has examined Allens conclusion. He confirms that the

data from the South Midlands appears representative of the English heartland although it

cannot hold for all of England. He also finds capitalist farming reached to smaller farms than

Allen supposed. The majority of farms between 20 and 30 acres in Buckinghamshire reported

to the 1851 census that they employed at least one male worker on 31 March, a slack date in

the agricultural calendar (Shaw-Taylor 2005). He finds that in 1700 small-scale capitalism

predominated in the south-east with three-quarters of the adult male agricultural workforce

being proletarian (Shaw-Taylor 2012, p.57).

It is perhaps strange that capitalist farming arose so strongly in England since in the

early middle ages (11th and 12th centuries) feudal manorialism, where elites held non-market

rights to labor of the agricultural population, was particularly strongly entrenched. In

contrast, in the Low Countries, where capitalist agriculture and high productivity also

emerged, manorialism was subverted by urban markets (Bavel 2010). Productive agriculture

in both part of the North Sea economy emerged in conjunction with well-organized markets

for factors of production (land, labor and capital). Product markets in peasant economies are

common and developed in most parts of medieval Europe (see chapter by Persson in this

volume). Markets for occasional labor are also common but very unusually a labor market

emerged in the North Sea economies that played a primary role in labor allocation.

The underlying determinants of labor market development are hard to trace but it

seem associated with another unusual feature of north-western Europethe early emergence


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of the European Marriage Pattern where newly married couples established a new household

independent of the previous generation. The marriage union was consensual and brides were

much older than typical in other societies. In late sixteenth century England brides were

typically about 25 and grooms two or three years older. Elsewhere, marriages were usually

arranged by parents, new couples integrated into families of the preceding generation and

teenage brides typically married substantially older men. In late medieval England and the

Low Countries young men and women left their parental home in their early teens to work

for wages, usually in agriculture. They accumulated resources for about a decade and

established independent households on marriage. Wage labor markets became well-

established with young men and women forming the majority of participants. There is

uncertainty as to the exact timing and extent of this market. Christopher Dyer has estimated

that in fourteenth, fifteenth and sixteenth century England just under half the population was

active in the labor market (and probably more in the most commercialized areas of the

southeast) (Dyer 2005, pp.21820). In the most advanced parts of the Low Countries

estimates have up to sixty percent of the population dependent on wage labor (Van Zanden

2009; De Moor & Van Zanden 2010).

Markets for the sale and leasing of land also developed in late medieval Europe, first

in Italy and then in the North Sea economies (although Englands strong manorial tradition

delayed its emergence somewhat). Modern short-term competitive leasing systems developed

in parts of the Low Countries in the fourteenth and fifteenth centuries and perhaps a century

later in England (Bavel 2008).


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The precocious allocation of labor to manufacturing

A substantial portion of the English labor force was employed in manufacturing well

before the Industrial Revolution. Deane and Colespath breaking quantitative assessment

relied heavily on social tables Gregory King constructed about 1690 as a starting point. They

tentatively concluded that agriculture employed somewhere between 60 and 80 percent of the

labor force (Deane & Cole 1967, p.137). Indispensable as he was as a starting point, King

painted a misleading picturea nation consisting of just London and a vast, poor

agricultural hinterland....England and Wales were almost surely more industrial and

commercial than he has led us to believe(Lindert 1980, p.707). Peter Lindert and Jeffrey

Williamson modified this view (Lindert 1980; Lindert & Williamson 1982; Lindert &

Williamson 1983) suggesting that Kings time 56 percent of the labor force was in the

primary sector (agriculture), 18 percent in the secondary (manufacturing) and 26 percent in

the tertiary sector.(service). In this picture Britain was still a highly agricultural economy

(Crafts 1985).

The Cambridge University Group for the History of Population and Social Structure

(Shaw-Taylor & E. Wrigley 2008; Shaw-Taylor et al. 2010) are currently re-estimating

eighteenth century occupational structure on the basis of information in a large number of

baptismal records. Their preliminary results indicate that considerably fewer English men

worked in agricultural and considerably more worked in manufacturing than even Lindert

and Williamsons work suggested. The new estimates for about 1710 show agriculture and

mining employed about 43 percent of the occupied male population and manufacturing

employed 39 percent. Over the next century, the share of the labor force in agriculture

declined only modestly to about 39 percent while the secondary sectors share increased to


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only 42 percent. These results strongly reinforce the conclusion that Britain was already well

on the way to a modern economy at the beginning of the eighteenth century.

Although the great late eighteenth century innovations in textiles and in iron

contributed to rising real incomes by lowering the costs of these products they do not seem to

have greatly increased the proportion of the labor force in manufacturing. However,

manufacturing concentrated geographically. In the early eighteenth century, Britains

secondary sector employment was widely distributed. The proportion of males in the sector

in Northern counties (47 percent) was higher than in the agriculturally-advantaged Southern

counties but the southern proportion was still 39 percent. By the early nineteenth century,

industrial employment had concentrated on a crescent of counties running from the West

Riding of Yorkshire through Lancashire then south and west to Glamorgan in South Wales.

In southern counties, the proportion of manufacturing workers had declined by more than a

quarter to 28 percent while in the North, principally in Lancashire and the West Riding, they

had increased by close to 62 percent. The bulk of southern de-industrialization occurred in

textiles. Male employment in clothing manufacture also declined significantly, presumably

due to the rise of ready-made clothing manufacture in the East Midlands and a feminization

of the trade (Shaw-Taylor et al. 2010). A second factor was replacement of charcoal-based

iron production by coal-based technology that drew the industry to the coal fields.

Britain was already substantially an industrialized economy by the early eighteenth

century. Manufacturing was widely dispersed and production units were still small. They,

nonetheless, clearly produced for the market and were subject to competitive pressure.

Textiles; clothing; leather processing; food and drink processing; and construction were by

far the largest sectors, accounting for over three quarters of manufacturing in the mid-


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eighteenth century (Harley 1982). Metal workers produced a wide variety of hardware and

trinkets for consumer markets as well as tools for agriculture, construction and

manufacturing. The high level of manufacturing production was a consequence of the

relatively high income levels. Efficient agriculture released labor and there was consumer

demandeven building laborers incomes provideda margin above subsistence and artisans

could afford modest luxuries including imported groceries, particularly sugar, tea and

tobacco, and modest amounts of manufactured goods. The well-to-do, including a rising

middle class, probably still constituted the major consumer market for manufactured goods.

Exports contributed importantly to Britains industrialization. Crafts calculated that

exports made up about 45 percent of manufactured output in 1801 (Crafts 1985, p.127).

Exports of woolen cloth to European markets completely dominated British exports until the

early eighteenth century. Manufactured goods continued to dominate exports during the

eighteenth century but important diversification occurred. By the third quarter of the

eighteenth century exports to the Americas nearly equaled exports to Europe and were widely

diversified with woolen cloth only a little over a quarter while metal products made up nearly

twenty percent and miscellaneous manufactured goods were nearly as important as woolens

(Davis 1962; Davis 1979).

Competitive imperial expansion and mercantilism characterized the eighteenth

century Atlantic Economy. Britain and France, and to a lesser extent the Netherlands,

challenged Spains imperial claims and established colonies in the Caribbean and the English

developed colonies on the North American mainland (chapter by OBrien in this volume).

The colonial economies revolved around export staples (principally sugar but also tobacco in

the English Chesapeake Bay) produced by African slaves. Mercantilist regulation reserved


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the trade of each imperial power to its own subjects. In the mercantile contest the English did

better than their rivals in developing markets for manufactured exports. Success did not arise

from superior colonies in the Caribbeanthe British islands were high cost sugar producers,

unable to compete with the rapidly growing output of French Saint Dominique without

protection and their prosperity depended on English consumers paying higher sugar prices to

support them. Nor were the English colonies particularly large compared to their rivals. What

differentiated the British Empire was the large population in the settler colonies of the

mainland who had been drawn, at least outside the Chesapeake, not by an export staple but

by the prospect of establishing an independent existence in a new land.

The settlers succeeded and population grew rapidly. By the third quarter of the

seventeen century, some sixty percent of English manufactured exports to the Americas went

to the mainland colonies (Davis 1979). These colonials financed their imports by selling

temperate agricultural and forest products to the sugar islands and providing mercantile and

shipping services. In this way the English paid for their sugar imports with manufactured

goods exports. To what extent, then, did the growth of English manufactured exports depend

on West Indian slavery? Certainly slave products ultimately financed exports to America.

However, the answer to the more interesting question: would those exports have not existed if

slavery had not existed? is less clear. The mainland colonies flourished largely independently

of slavery. Englishmen probably would have settled and population grown rapidly even if the

West Indian slave colonies had not existed. They would still have demanded European

industrial goods. Without opportunities in the West Indies, they would have had to find other

ways of financing imports that were inferior to those they used and imports would have been


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smaller but it is likely that they would have remained substantial and helped to sustain

Britains precocious industrialization.

Conclusions on Britains industrialization

Britains industrialization had deep roots; produced in an already well-developed

capitalist economy that had long been mediated by markets. Product markets developed well

before the Black Death. They may have retreated some with population decline but remained

substantial and expanded when population recovered in the sixteenth century. More

importantly and more unusually, late medieval markets for factors of production were also

well-established. In early modern England most land was held in market contracts. In

addition, most English men and women experienced a labor market in the countryside or in

towns. Agriculture was unusually productive, probably because of its capitalist organization.

The land rental market allowed successful farmers to expand while their less successful rivals

lost land. In the early seventeenth century family labor remained important on most English

farms but most of the acreage farmed employed hired labor. Under these circumstances, labor

decisions were made with reference to a labor market. Feudal relationships had long since

disappeared. There was not significant class of peasant cultivatorsat least in sense of small

farms that had customary or ownership rights to their land, who were only tangentially

involved in the product market, and organized their labor independently of labor markets.

The penetration of markets resulted in what economic historians have come to refer to

as Smithian growth following Adam Smiths observation that specialization and

productivity advance was limited by the extent of the market. Smith recognized three growth

inducing processes: specialization and exchange that exploits comparative advantage; capital

accumulation; technological improvement. These can all be seen in Britain by the eighteenth


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century. Agricultural improvement was stimulated by market opportunities, presented most

conspicuously by the growth of London as a trading, administration, production and

consumption centre. Modern industrialization is often seen as a process that substitutes

mineral sources of power for pre-modern sources based on human and animal muscle and

wood all of which are limited by agricultural resources. Britain developed coal as a source of

power and fuel long before the late eighteenth century industrialization. Englishmen had been

learning how to use coal from at least the seventeenth century (Allen 2009a; Allen 2009b;

Hatcher 1993; Nef 1932). Builders experimented in the use of coal for domestic heating and

by the eighteenth century Newcastle coal heated London houses. Coal also provided heat for

many industrial processes from brewing beer to refining copper. Iron masters experimented

in using coal but chemical problems remained unsolved until the end of the eighteenth

century. Within textile production, the largest pre-modern manufacturing industry, large

numbers of merchant manufacturers, many immigrants from warfare in the Low Countries

and religious intolerance in France and others inspired by continental examples developed

new techniques and fabrics (the so-called New Draperies).

In this view of British development, which rests on statistical analysis, long-run

international comparisons of standards of living and a long view of institutions and

innovation, it appears inappropriate to overemphasize the famous decades of the 1760s and

1770s and the achievements of Arkwright, Watt and Cort. There are two perspectives that are

worth reviewing. First, how much did the inventions contribute to economic growth? Here

statistical analysis shows that the impact was limited. More importantly, did these

developments mark the start of an era of faster and more sustained technological change? By

current standards technological change and growth of living standards before the nineteenth


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century was so slow as to be barely noticeable. Growth, mainly driven by technological

change, accelerated in the middle of the nineteenth century to eventually reach twentieth

century levels of about one percent per year (Crafts 2004a; Crafts & Harley 1992; Crafts & T.

C. Mills 2009). Although the technological change in textiles in the late eighteenth century

and early nineteenth century was rapid and had the highly visible impact of enlarging an

already large textile sector and concentrating it in urban factories, its impact on overall

growth was modest. The innovations of the late eighteenth century can be seen as the result

of a sustained research and development program that extended existing ideas in a high wage

environment; the inventions fit within a longer continuum of Smithian growth.

Arkwright transformed and concentrated Britains largest manufacturing sector in a

manner that caught the attention of contemporaries and historians but did not greatly increase

aggregate growth. Nonetheless, the successful application of mechanical manipulation

(clock-work) on a large scale and the development of the factory as a primary locus of

production marked important steps in the evolution of technology. Cotton factories

stimulated the development of specialist machine producers who became a locus of improved

technology (Rosenberg, 1994). That said, however, it is hard to see fundamental changes

emerging from the textile innovations. For example, we might ask: did the cotton innovations

make the railway more likely? Probably not. In many ways the breakthrough in cotton was

not all that different from, say, the expansion of large-scale pottery production in the West

Midlands by Wedgewood and others. Watts improvements in the steam engine and Corts

development of improved methods of using coal to produce wrought iron had similar

characteristics. They were the result of conscious application of resources to already defined

research and development programs. They both marked stages on the evolution of


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technological change. Both involved, at least at a modest level, the introduction of science

into industrial research and development.

During the nineteenth century the success of the industries of the Industrial

Revolution within the international economy continued to influence Britain. The textile

industries, highly concentrated in Lancashire and the West Riding of Yorkshire, and the large

coal-based ironworks on the coal fields captured the most attention. Foreign trade contributed

the growth of both. Even before the French Revolution, the Lancashire cotton industry

enthusiastically supported freer trade and the Eden Treaty with France (1786). Competition

drove down the price of yarn dramatically and low yarn prices in England attracted foreign

buyers even in the face of severe wartime disruption. By the time peace was restored in 1815

the British cotton mills were selling to foreign customers as much as to their countrymen.

Although the technology quickly became available overseas as a result of foreigners copying

the English practice, hiring British mechanics and, after the 1843 repeal of the British

prohibition of the export of machinery, buying machinery exported by English makers

(Jeremy 1981), the British remained the low cost producer of all but the simplest fabrics and

two-thirds of output was exported until the outbreak of the First World War. Woolen

manufacturers did not capture world markets to the same extent but exported a large portion

of their output. Consequently, the textile industries were much larger than they would have

been if they had depended on domestic markets (Findlay & ORourke 2007).

Puddling and rolling for wrought iron production also grew in response to Britians

changed position in the international market. Before Corts inventions nearly sixty percent of

the wrought iron used in Britain was imported, principally from timber and ore abundant

Sweden and Russia ((Hyde 1977; Harley 1982; Fremdling 2000). The industry initially grew


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largely by displacing imports. By the early decades of the nineteenth century, however,

Britain was exporting pig iron and wrought iron. The railways, first in Britain and then

elsewhere, greatly increased the demand for iron and Britain was the principal international

provider. Rainer Fremdling calculated that in the late 1840s railway iron consumed a little

over a quarter of British iron production and about forty percent of that was exported for use

in the United States and Western Europe. Although the importance of railway iron declined

in the subsequent decade to a bit over a sixth of output as the pace of British railway

construction eased and output increased by about seventy percent as other uses of iron

expanded. Exports continued to increase primarily to meet the demands of the expanding

railway networks in the United States and Europe (Fremdling 1977). Technological

leadership also supported the growth of British engineering. In the 1840s the industry

succeeded in having prohibitions on the exports of machinery repealed and exports expanded

rapidly. British machine-makers dominated world textile markets and were strong in other

industries. British engineers and machinery were central to early railway construction on the

Continent. For example, between 1838 and 1841 the Prussian Railways purchased 48 of its

first 51 locomotives from British manufacturersthe dominance of British manufacturers

then declined and locomotives were almost entirely of German manufacture (Fremdling

1977).

British technological leadership was enhanced by the isolation engendered by the

Revolutionary and Napoleonic Warsfor twenty years British firms gained experience in the

new technologies while potential rivals on the continent had little access to British practice.

Lower prices from technological leadership led to extensive exports. We should, however, be

careful not to attribute too much gain to the British from these exports. British competitive


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capitalism eliminated excess profits rapidly. Prices fell as firms entered industries to take

advantage of lower costs. The benefits from technological improvement took the form of

cheaper goods enjoyed by consumers and not higher profits for firms. Exports grew because

prices fell; the foreign consumers of the goods shared the benefits of improved productivity

with British consumers (Harley 2004).

In the long run, the steam engine was probably the most important technological

development of the classical Industrial Revolution. Several points need to be made, however.

First, Watt clearly drew on earlier developments, particularly Newcomens pumping engine

that had been in use since early in the eighteenth century. Second, the impact of the steam

engine depended as much on its further development as on Watts innovations. Third, the

impact of steam engines, even in cotton manufacturing which dominated its earliest use

outside of pumping applications, was minor until the 1830s (von Tunzelmann 1978). The

great contribution of steam to increased efficiency came from its later application to

transportationrailways and steamships. These innovations impressively lowered costs and

induced investment that increased the amount of capital per worker (Crafts 2004b; Crafts

2004a). Crafts calculated that from 1830 to the First World War, steam power and the

investments it induced in transportation networks generated about a third of a percent per

year growth in labor productivity, but before 1830 its contribution was barely noticeable at

one or two tenths of a percent per year. The contributions of the other famous industries were

much less. The cotton industrys spectacular technological transformation may have

increased the growth of the economy by a eighth of one percent a year between 1780 and

1860. Improvements in agriculture (a much larger sector with slower technical change)

contributed a little more. The other modernized industries together contributed rather less


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than cotton (Harley 1999). The sustained growth in per capita income after 1830 (a little over

one percent per year, three quarters of which arose from total factor productivity growth)

resulted from improvements broadly across the economy and cannot be explained mainly by

changes in the famous industries. No historian has yet carried out an accounting exercise to

quantify this process but we know changes were widespread. Agricultural productivity

continued to rise. New, improved and cheaper chemicals and glass appeared. Food processing

improved with such things as better flour mills, refrigeration and packaged food. The sewing

machine increased productivity in clothing manufacture and shoe making. Improvements in

machine making and steel contributed to productivity advance but generally it must be

concluded that change were broadly spread through the economy. This was the dynamics of

capitalism at work on a broad scale (Bruland & Mowery 2005).

During the Industrial Revolution (1770-1830) the average real wage of British male

workers changed little (Feinstein 1998; Allen 2007; Clark 2005). Wage experiences varied

rural workers in the south of England suffered as population growth and deindustrialization

hit their labor market; handloom weavers initially benefited from cheap yarn but then their

swollen numbers were victims of mechanization. Wages increased in urban factories but

workers faced an unhealthy environment, loss of freedom and an absence of amenities

(Williamson 1985). During and after the French Revolution, the state responded to war and

fear of unrest by suppressing working class rights and political expression. Child labor

intensified and the economic conditions of working class women probably deteriorated with

the enclosure of common lands and the decline of manufacturing in the countryside

certainly the widespread employment in spinning disappeared (Humphries 2011). Optimists,

however, point out that factors other than industrialization keep wages down: population


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grew at one and a half percent a yeara rate that historically would have been accompanied

by falling wages; the Revolutionary and Napoleonic Wars were extremely expensive and

protracted. From the 1830s the real wages of working men clearly trended upwards and were

about fifty percent higher by 1880. Many working-class families in Britain at the end of the

nineteenth century remained desperately poor but almost all were less poor than their great-

grandparents had been at the end of the eighteenth century and few experienced the levels of

poverty that were common in Italy or eastern Europethe poorer parts of Europe.

Industrialization in Continental Europe

Narratives of the spread of industrialization in Europe have tended, following Marxs

comment that the country that is more developed industrially only shows, to the less

developed, the image of its own future, to revolve around the spread of the leading

industries of Britains Industrial Revolution factory-based textiles; iron; mechanical

engineeringwith tables of cotton consumption, pig iron output, coal production and railway

mileage (Pollard 1981; Landes 1969). This provides insights into the particular industries and

the process of technology transfer but is inadequate for three reasons. First, these industries

are insufficient to explain Britains success. Second,local conditionsparticularly expensive

labor and cheap energy from coalstrongly influenced these industries success in Britain

and affected continental development. Third, Britains industries grew becausefalling prices

and Britains continuing first-mover advantage supported massive exports markets. Followers

could hardly have replicated this experience.

Britains technological achievement, particularly in textiles and iron, significantly

affected continental industries but there were important national differences in responses.

Imports from Britain challenged established producers who obtained tariffs protection.


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British technology was copied, particularly in modern textile production, through industrial

espionage and more importantly through the employment of skilled British workers and after

the 1843 by the purchase of British machinery, (Bruland 2003). Textiles emulated British

methods but experience differed from place to place. France adopted heavy tariff protection

in the face of cheap British imports after the Napoleonic Wars. Consequently, machine

spinning became established with the aid of British skilled workers but with higher costs than

in England. (Landes 1969, pp.15863; Milward & Saul 1973, pp. 2707, 31622). In Prussia,

however, protection was moderate and consequently, imports of British yarn expanded as did

handloom weaving. In the late 1830s about two thirds of the cotton yarn used in the German

states was imported (Pollard 1981, p.181).

The spread of coal-based iron production was more complicated because success

depended on coal and ore and because the older charcoal-based technology produced superior

iron that commanded a higher price. Again tariff policy was important. France adopted

complete protection while the German Zollverein enacted lower tariffs with a structure that

encouraged the import of pig iron for domestic refining. Continental iron masters adopted

new iron technologies at different rates and in different combinations depending on resources

and markets. Charcoal-smelted pig iron persisted but coal was increasingly used for refining

wrought iron. Even in the highly protected French market, coal-smelted pig iron initially had

trouble competing. The coming of the railways in the 1840s created a mass demand for lower

quality iron and coal-based pig iron production finally became established on coal fields in

France and Belgium and Silesia, and, after deep mines were sunk in the 1840s, in the German

Ruhr (Fremdling 1977; Fremdling 2000; Evans & Rydn 2005). Elsewhere the absence of

coal precluded the industrys development.


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The most important transfer of British technology was undoubtedly the railways.

They stimulated investment and finance and transformed the fortunes of the iron industry.

More fundamentally they integrated national markets allowing greater specialization in both

industry and agriculture.

In narratives that revolve around textiles and iron, Belgium and Germany emerged as

the principal successes while France disappointed. Belgium maintained its position as highly

industrialized region with about 30 percent of its national income in the industrial sector in

1870 (only Britain with 34 percent had more) (Broadberry, Fremdling, et al. 2010, p.170). In

the mid nineteenth century, factory textile firms took over from traditional textile producers

(present from medieval times) but not without creating hardship for traditional hand-loom

weavers. More importantly, engineering firms developed impressive capacity in machine-

building (although they were slow to turn to new industries in the final years of the century).

The Belgian iron industry continued to grow with the successful switch to steel production

and the development of larger firms and plant. It, however, lost its initial continental

leadership to German rivals (Milward & Saul 1977, pp.15465).

After the 1848 revolutions, Germany was the great success in this narrative. Building

railroads and political change began the transformation and the iron and steel industry took

pride of place. In the final quarter of the century, German iron and steel firms increased the

size, capital intensity and modernity of their plants and firms like Krupp became

technological leaders. Germans produced a quantity of steel second only to the United States

and exported steel, particularly to markets in continental Europe (Landes 1969, pp.24969).

Along with iron and steel, engineering flourished in the aftermath of the railway. German


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capitalists supplied not only the domestic market but also much of the machinery, outside of

textile-machines, demand in Europe.

The conventional narrative delineates the development of some important industries

but one must question how much insight it provides into the process of modern economic

growth. Although the title of this essay is European industrialization the process by which

sustained growth of income per head developed is clearly the important issue. In our

discussion of Britain we have already seen that the British model of textiles and iron can

explain only a small proportion of Britains growth. Similar conclusions are appropriate for

continental Europe. Narratives that assume modern economic growth emerged by emulating

the leading sectors of mid-nineteenth Britain exaggerates the role and contribution of a few

new industries.

First, the industries that are most studied and taken to indicate the emergence of

economic growth made up only a modest a share of manufacturing and a much smaller

portion of national income. In Germany, the metal industriesincluding iron and steel and

engineeringcontributed about 15 percent of the value of manufacturing around 1870. Since

manufacturing, including mining, construction and utilities, amounted to a little over a

quarter of national income these industries amounted to less than four percent of national

output (Broadberry, Fremdling, et al. 2010, pp.16874). The Germany metal industry in 1913

was about 10 times as large as it had been in 1870. This is impressive growth but some

simple calculations put it into perspective. First we can exaggerate the sectors effect by

assuming for simplicity that the growth occurred without increasing the share of resources

used in the industry (thus not reducing the output of other sectors of the economy). In fact,

although productivity gains in metal production were impressive at 2.4 percent per year


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(Milward & Saul 1977, p.26), this plus an increase in the labor force equal to population

growth would have only increased metal output by a little less than four-fold. If all the ten-

fold growth had been productivity gain it would have increased national income by about

thirty-five percent. Thirty-five percent appears to be a large increase but is a growth rate of

somewhat under 1 percent annually. German population was growing at 1.16 percent per year

so productivity growth of the metal industries alone would have resulted in a decline in per

capita income. More realistically, if we assume the rest of the economy grew at the same rate

as population growth, the growth of metal production would have increased per capita

income about twenty percent or under half a percent per year. Since Germany per capita

income more than doubled between 1870 and 1913, the contribution of the metal and

engineering industries was modest. Many will object to placing much weight on the

preceding calculations. After all, the key story of the geneses of dynamic change is absent

from the calculation. However, quantitative historians are fond of quoting Samuel Johnson on

the effect of simple calculations: "That, Sir, is the good of counting. It brings everything to a

certainty, which before floated in the mind indefinitely" (quoted in (McCloskey 1981,

p.105)).

Cotton textiles, which led the introduction of the factory system in Britain, is the other

industry on which traditional narratives concentrate. Again, unless the goal is to trace

emulation of Britain, the focus is strange. Factory-based machine-spinning became

established throughout Europe and the textile industries grew but if we were to carry out an

exercise like that above we would find a similar result. On average the textile and clothing

industries were a little over twice the size of the metal industries but grew more slowly. More

troubling, however, is the fact that textile industries in continental Europe depended on


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protection from the more efficient British industry. This had, of course, also been true of the

metal industries until the last quarter of the century when Germanys industry became

competitive. No such growing-up of mass-production textile industries occurred and

consequently European consumers real incomes were reduced by the growth of their

domestic textile industry. There were, of course, some exceptions. Silk production grew in

France and Italy thrived in export markets and was never threatened by British firms. French

firms successfully held onto high fashion textiles and clothing. The protected cotton

industries introduced urban factories to the continent, and may have stimulated mechanical

engineering and generally enhanced the technological capability but most of the industrys

machinery was imported from Britain. It is hard to sustain a claim that cotton textiles were

the engine of growth.

Railways are the third great indicator of industrialization and here the story is

somewhat different. Transportation services are, of course, location specific and not tradable.

Railway technology was quickly adopted across Europe, with some modest delays relating to

government policy and finance. Technology and finance were readily available

internationally although modest commercial prospects in more backward regions led to

government involvement in finance either directly with state debt or by guaranteeing interest

on railway debt. In either case most of the capital came from foreign investors. The direct

impact of railways on transportation varied depending on the pre-existing transportation

network and the level of commercial development. In particular the impact was less in

regions with well-developed water transportation. Various calculations of the transportation

cost saving generated by the railways, while somewhat problematic, are in the neighborhood

of five percent of national income (Broadberry, Federico, et al. 2010, p.81). Unlike iron and


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steel or textiles, transportation improvements brought by the railway almost certainly had

spill-over that affected growth widely. In particular, cheaper, faster and more reliable

transportation and communications (aided by the telegraph that accompanied railways)

integrated national economies allowing greater specialization in both industry and

agriculture. Efficient producers expanded at the expense of small local and relatively

inefficient firms and household production. For example, Berlinsituated in a backward

agricultural area east of the Elbe distant from the main markets in western Germany

become a major producer of engineering and consumer products for all of Germany.

Agriculture was profoundly affected. Agricultural historians note that market access was an

important determinant of investment and technological improvement (Hoffman 1996;

Grantham 1989; Allen 2003). Railways brought remote areas all across Europe into closer

contact with urban markets and stimulated productivity advance. Nonetheless, the impact of

railways was large only when they successfully interacted with wider forces of economic

change.

Per capita income and inadequacy of British model

Historians have constructed estimates of national income for the past. These figures

should be viewed as work in progress and used with care. The data that modern statisticians

use are not available before the mid-twentieth century and officials who collected earlier

statistical material did not think in terms of a concept of national income. Nonetheless it is

almost impossible to think about economic growth without an estimate of aggregate activity.

Without them, we rely on impressions that overemphasize the novel, the spectacular and the

new. Table 14.1 below provides estimates for European countries from the eighteenth century

to the First World War. They show (as do the long-run real wage figures above) there was a


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gradient of incomes in Europe prior to the nineteenth century industrialization. The highest

incomes were in the Netherlands and Britain while lower incomes prevailed in the Southern

and Eastern periphery. The national income figures also correspond with the narrative

historys conclusion thatGermany was a particular success but that success was primarily in

overcoming initial backwardness. Even in 1913 Germany does not stand out as having

achieved high income per capita. National income statistics also highlight the fragility of

narratives of economic growth based on industrialization driven by textiles and iron. They

show the success of Germany and Belgium but the companion story of failure of France and

the Netherlands must be abandoned.

When we look at the structure of industry in France we are struck almost immediately

by the small size of the metal and mining sectors which loom large in conventional

narratives. French economy grew quite slowly in aggregate when compared to Britain and

Germany (1.6 percent per year in contrast to 1.9 and 2.8 percent for Britain and Germany) but

during the same period British population increased by two-thirds and German population

nearly doubled while Frances increased by only fourteen percent. Consequently, as we can

see from Table 14.1, German growth per capita only slightly exceeds that of France and

France grew considerably faster than Britain. France grew with a very different economic

structure than Germany or Britain. Metal and mining were unimportant primarily because

France had poor coal resources. Industrialization followed a different path and agriculture

declined relatively more slowly without substantially hurting overall growth. In 1870, France

and Germany both had half their working population in agriculture; by 1913, the share in

Germany had fallen to thirty-five percent but in France it remained at forty-one percent.

French slower population growth put less pressure on rural population.


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Research on the French economy now effectively challenges the failure narrative.

OBrien and Keyder demonstrated that productivity in French industry was high during the

eighteenth and nineteenth century. They summarize the difference between French and

British industry as follows:

Value added per worker remained high in France because industry specialised in

higher-value products. For such products, differentiated in quality and style, the

workshop unit of production, often organized on a family basis, could train

skilled labor and cater effectively for local and other specific demands (Keyder &

OBrien 1978, pp.1789).

Mechanization, large factories and the extensive use of mineral fuels were among the

changes in industrializing Europe but they were not necessary to generate economic growth.

In many sectors small-scale capitalist enterprises remained efficient and profitable. By the

last years of the nineteenth new industries were developing and France performed well,

achieving leadership in automobile, aviation and electrical engineering, for example. Recent

detailed examination of comparative income statistics confirms the high levels of

productivity in French industry in the early twentieth century (Woltjer et al. 2010).

The national income statistics reveal two other successful economies that did not

follow the British-Germany modelthe Netherlands and Denmark. The Netherlands is

covered in detail in another chapter. Here it is only necessary to note that although a story of

relative failure of growth in the Dutch economy in the eighteenth and nineteenth centuries

has large elements of truth, per capita income remained high despite the failure to adopt the

so-called key industries. Efficient services, specialized agriculture and associated food

production and other light industries provided incomes that rivaled those in Britain through

most of the nineteenth century. The Danish story is even more impressive. The economic


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structure was even more heavily biased towards specialized food production and processing

than the Dutch but the Danes attained growth rates of per capita income between 1820 and

1913 that were close to those achieved by Germany by specializing completely differently.

Gerschenkron, relative backwardness and convergence

Exploring the development of the industries that were at the forefront of Britain's

Industrial Revolution provides information about the spread of technology but fails to

provide an adequate basis for understanding the mechanisms involved in the emergence of

modern economic growth. In what is probably the most influential essay in European

economic history in the past two generations, Alexander Gerschenkron suggested a typology

of the history of European industrialization that gave prominence to initial conditions of

backwardness at the start of industrialization and focused on systematic substitutions for the

"prerequisites" of growth that had been present in Britain's industrialization (Gerschenkron

1962).

Contemporaries and historians alike were aware that the most advanced economies

lay in Britain and the Netherlands in the north-west. Moving east across the North European

Plain gradation of backwardness seemed obvious. France's relative backwardness vis a vis the

North Sea economieswas perhaps open to debate. The western states of Germany,

however, were clearly more backward than France or the Low Countries. As one crossed the

Elbe, the level of backwardness increased and Russia was clearly well behind. Moving from

north to south a similar gradient appeared although generalization was more tenuous because

legacies of earlier urban commercial success remained and significant differences in climate

affected agriculture. The south of France was behind the north; Italy, despite its illustrious


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past, lagged badly. The Balkans, influenced by their troubled history on the periphery of the

Ottoman Empire, as well as their fragmented geography, lagged even further behind.

Gerschenkron accepted that backwardness was multi-dimensions but various

indicators yielded the same ranking. The most obvious indicator was per capita income, or

general standard of living but the profile of backwardness was also visible in a range of

institutional features, three, all characteristics of developed capitalism, stand out: the

organization of agriculture; the extent of commercialization and urbanization and the general

penetration of commodity markets; the development of factor markets for both labor and

capital. Capitalist agriculture with well-developed markets in labor and land predominated in

Britain and, in a different form in the Low Countries; peasant farmers dominated French

agriculture and western Germany; beyond the Elbe aristocratic landlords farmed under feudal

relations using forced labor and draft animals of serfs. At the most extreme was Russian

serfdom. The extent of markets diminished from west to east. Britain and the Netherlands had

well-developed financial markets; France, although it lagged somewhat behind, also had

well-developed, if somewhat different, institutions (Hoffman et al. 2001). There was some

financial development in western Germany but little further east. In Britain and in the

Netherlands, labor markets dominated the allocation of labor and most of the population had

labor market experience. In French and western Germany some two-thirds of the labor force

in the eighteenth century was in agriculture mainly organized on the basis of the custom of

the peasant family rather than the labor market. The serfdom east of the Elbe was based on

un-free labor under obligation of providing labor to landlords.

Gerschenkron put forward a number of hypotheses regarding the influence of relative

backwardness, some of which have survived critical examination better than others. His


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predictions include the hypothesis that industrialization in a more backward economy started

with a more rapid spurt than had characterized more advanced economies. This rapid growth

arose out of several related ideas. First, there was a gap between the technological

possibilities demonstrated by the advanced economies and the current economy. If the

institutional forces preventing development could be overcome, there was a potential for

rapid catch-up growth. Second, in backward economies, the majority of the population in low

productivity agriculture and organized on the basis of either family or servile labor (or some

combination of both) demanded few goods on the market and so could not provide the basis

for development of consumers' goods industries. For growth to occur it was necessary to

achieve a development blocof producersgoods industries that could provide each other

markets. Consequent, growth began with a big spurt.

In conditions of backwardness, markets for finished goods and factors of production

were poorly developed and consequently, entrepreneurs could not rely on wide-spread

competition among buyers and sellers to insure that products could be readily sold at

competitive prices or that inputs and intermediate goods could be readily purchased in

required quantities. In Industrial Revolution Britain broad markets existed permitting firms to

develop on a small scale and concentrate on a production niche confident that inputs could be

readily purchased and output, even intermediate goods in a longer production chain, could be

sold. In backward economies, firms found that it was necessary to adopt hierarchical

organization within the firm to overcome market limitations. As a result, larger firms

emerged that often integrated the entire process from raw material supply to final product

sale under managerial control (Harley 1991).


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Finance also was less market-oriented in more backward economies. In Britain, small

firms had been able to finance development by a variety of means because financial

transactions were well-developed. Firms generally grew from funds accumulated in pre-

existing mercantile-manufacturing, personal contacts, the existing network of trade credit and

the short-term financing that British commercial banks were willing to offer. Behind these

arrangements, well-developed financial markets in bills of exchange, and a stock exchange

supported the development of diversified portfolios for investors. For more capital intensive

infrastructure like turnpikes and canals, trusts and companies were organized to tap more

extensive sources of funds (Harris 2000, sec.2). When railways demanded exceptionally large

amounts of capital in a short period of time, they were able to borrow directly on the stock

exchange. In conditions of moderate backwardness, in Gerschenkron's narrative primarily

Germany but also France and Italy, commercial sources and financial markets did not have

the capacity to provide the same financing and substitutes developed in the form of the large

universal banks beginning with the Crdit Mobilier in France and then dominating finance in

Germany. These institutions accepted deposits and made commercial loans but were also

willing to take longer-term positions in the financing of large firms and to act as

intermediaries in the issuing and distribution of stock to investors. In conditions of extreme

backwardness, exemplified by Russia, conditions were too backward even to support this sort

of bank and the state played an important role in industrial finance with public debt proving

an instrument that investors, particularly the richer west, were willing to hold.

Backwardness also influenced the choice of techniques by firms in newly established

industries. Backwardness provided a tension for entrepreneurs between employing the latest

technology that had been developed in more advanced economies to suit their high wage


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conditions and the cheap labor of the backward economy. In fact, however, the dilemma was

to a large extent false. To be sure raw brute labor was cheap but skilled labor and even

disciplined labor suitable for factory production was scarcer than in advanced economies.

Consequently, and apparently paradoxically, industries like steel the backward economy

installed the most advanced labor-saving technology in key parts of production while using

cheap unskilled, or brute, labor as much as possible in auxiliary operations.

Backward agriculture played a major role in Gerschenkron's thinking and was the

subject of two of his major works (Gerschenkron 1943; Gerschenkron 1966). He concluded

that the contribution of agriculture to the growth process declined with backwardness because

the poverty of agriculture and the tenuous connection of agricultural workers to the market

limited the sectors contribution to demand. Because of its institutional nature the agricultural

sector did not release labor and create a market-oriented work force as happened in Britain.

Gerschenkron's schema provides substantial insight into the variation within European

industrialization, particularly when combined with an awareness of the importance of coal for

the development on industry on the British model. It is particularly useful in illuminating

differences in institutional structure that emerged in different countries. It is hardly surprising

that the generalizations have proven too sweeping to be a totally reliable guide to the

complex economic history of modern Europe. Gerschenkrondespite his avowed aim to

replace Marx's great generalization that more backward countries follow the path of

industrialization carved out by the first examplestill thought in terms of emulating the

British experience of large urban factories and a vibrant iron industry. The substitutions of

prerequisites that he identifiedlarge hierarchical firms, a key role for banks and the state in

finance, the adoption of the most advanced technology to overcome the shortcomings of


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labor in backward economieswere largely relevant for the big industriesand like other

discussions with similar focus, it is less helpful in understanding less spectacular

development of other sectors.

Gerschenkron's big spurtat the start of industrialization has proven hard to find in

aggregate statistics (Crafts et al. 1991). However, there is connection with the idea of

convergence of income levels among economies is particular growth clubsin which

economies that have initially lower incomes tend to grow more rapidly and converge towards

income levels of initially richest economies. Convergence certainly occurred in Western

Europe by the late twentieth century although in the European periphery it was little in

evidence until the midtwentieth century. Convergence is, of course, by no means

guaranteed. On a global scale the history of the nineteenth and twentieth century has been

one of divergence, big timewith a small club of successful economies in western Europe

and its offshoots growing much faster than poorer economies elsewhere, increasing global

inequality.

Agriculture

When we shift our focus from the greatindustries to a more holistic view of

economies and the levels of income that they generated, backwardness and its implications

for growth across European return our attention to agriculture. High agriculture productivity

was a leading determinant of Britain's relatively high incomes at an early date. Allens recent

estimates of comparative output per worker in agriculture for some key European countries

are presented in Table 14.3 along with estimates for the years just before the First World

War.


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The high productivity of the Netherlands (shared with Belgium) in the late eighteenth

century is apparent but low productivity elsewhere is more striking. Contemporaries did not

see these data but the relative backwardness of continental agriculture was apparent and

associated with agricultural institutions. In England capitalist agriculture had proceeded to its

limit. In France, and to a somewhat lesser extent in western Germany, peasant proprietors

with secure title to land farmed with family labor. In France, peasant security of title was

enhanced by the Revolution and as Patrick OBrien notes, [b]y abolishing seigniorial dues

and suppressing tithes, the Revolutionaries also transferred agricultural income back to those

who farmed the land. At a stroke, the tax and judicial reforms of the 1790s lightened burdens

on the peasantry and enhanced their capacity to prosper on small plots of land(OBrien

1996, p.228).

In Germany east of the Elbe a more backward feudal system of estate agriculture

Gutsherrschaftpredominated. Aristocrats farmed their estates to the largest possible degree

using enforced serf labor of which there were two classes. More substantial peasants with

property rights were required to provide draft animals and stipulated labor services. Lesser

peasants without legal property provide only labor. The extent of labor required from a

peasant farmstead was considerable:

As a rule of thumb, one can say that enforced serf labor did not exceed 2-3

days a week for peasants with property in their land. As for peasants without

property, it depended entirely on the requirements of the estates. There were

quite often 4, 5 or even 6 days of enforced labor per peasant-farmstead. As the

great majority of the peasants had no property rights in their land we can


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quite confidently say that enforced labor for more than 3 days a week was

very widespread in these areas. (Harnisch 1986, p.45)

The system provided cheap labor, draft animal capital and serf-built structures that

underpinned a profitable system for the landowning aristocracy. Harnish quotes a prominent

Pomeranian official who wrote that managing an estate with enforced labor might not lead

to the highest possible yields and would certainly cause a lot of irritation and annoyance,...but

it was convenient and cheap (Harnisch 1986, p.45). In Russia serfdom was even more

strongly entrenched with heavier peasant obligations and even less freedo

Documents

British and European industrialization